Back in Roman times soothsayers would predict the future by examining the entrails of animals. And astrologers throughout time have relied on the placement of stars to guide people's life decisions. Ditto, numerology. All these pseudo-sciences relay on man's superstitious nature to survive ... and there are modern-day equivalents. For example, trading in stocks, commodities, etc. often is predicated on "technical analysis" ... a misnomer if there ever was one.
Technical analysis in its truest form ignores all the fundamental metrics associated with such trading entities (such as price-earnings rations, earnings growth, yield, etc. in the case of stocks) and concentrates on discerning patterns in the chart of price and volume movements (a little like animal entrails.) Such charting terms as 200-day moving averages, reverse head-and-shoulders, triple bottoms, Fibonacci series, etc. are often used to make buy or sell decisions ... sometimes successfully.
But why would such dice-rolling succeed? Because there are legions of other traders who believe in such omens. Why are 50-day or 200-day moving averages important? Why not 23-day or 174-day moving averages? Well, it is only because that is what nearly all the "technicians" use ... therefore, this can be predictive of what other soothsayers are going to do ... and so early discerners of such movements can, and often do prosper. This then become a validation of such silliness ... which is why is survives.
This whole technical analysis thing is kinda like going to a gambling casino when, if you have any rationality, you will know that the cards are stacked against you ... but, somehow you still believe you can beat them at their own games.
A very few do, but most don't.
1 comment:
The economist Paul Samuelson once said "Most technicians have holes in their shoes."
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